Did Buy-to-Let landlords cause the housing crisis?

Media reports have long blamed landlords for causing the UK’s housing crisis, a phenomenon that is by no means confined to the UK. You only need to look at events in the Irish Republic, Australia, New Zealand, Canada, and the USA to see that rising asset prices have had the same effect across the world, and this has hit first time buyers the hardest.

That did not stop the UK Government’s assault on UK landlords, with a series of tax hikes that have hit the sector hard, driving some to leave the buy-to-let market for good. The Government’s clear intention according to Peter Armistead, a property investor in South Manchester, was to reduce BTL profits and contract the market, in an effort to stabilise house prices and help first time buyers onto the property ladder.

The big question is, says Mr Armistead, will this strategy work, or have landlords simply been used as a scapegoat for the housing crisis?

According to former Bank of England economist, Professor David Miles, the buy-to-let assault has been ‘profoundly wrongheaded’ and the government has wrongly blamed landlords for rising house prices and a shortage of new homes available to first-time buyers.

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Professor Miles has said the government’s move to make buy-to-let less attractive than homeownership would serve only to push up rents and make it even harder for young people to save for a deposit.

Landlords and all second home owners have been hit hard by the introduction of a 3% surcharge in stamp duty payable on buy-to-let purchases from April last year, together with a staggered reduction in the tax relief on mortgage interest payments they can claim from April 2017.

Previously, landlords could deduct both mortgage interest and other allowable costs associated with a let property from their rental income, before calculating how much tax was due. This meant the income they had to declare to HMRC was much lower than their rental income, keeping their costs down and keeping many in a lower income tax bracket.

Since 6 April 2017, landlords have seen the amount they can write off for tax purposes drop by 25% each tax year until 2020, when they will have to declare all of their rent as income, pay income tax on the total and then claim back for 20% of it as a credit.

According to Peter Armistead, Managing Director of Armistead Property, although the government is trying to curb the buy-to-let market, property investment is robust in the long term.

Mr Armistead commented:

“It is estimated that two million Britons are now private landlords collectively renting out five million properties. With rising demand for rental property and a growing shortage of accommodation, the buy-to-let market will continue give a good return on investment.

“The good news for landlords is that while the new tax rules are challenging for most landlords, rising asset values and rental income will go a long way to protect profits.

“Landlords have plenty of options available that will help offset the increased taxation. The first thing landlords should do is carry out a serious portfolio review and work out how the tax changes and tougher mortgage lending will affect them and what options there are to save, or make more money. For example, mortgaging to get a better deal; renovating some old stock – these costs will be tax deductible; selling some properties; or increasing the rent.

“Landlords need to think outside the box and ask themselves questions like can I buy with cash or with far less leverage?; should I incorporate?; can I change a house into an HMO and increase the rental income?; can I get planning on an existing property to increase its value?; or can I add an extension, or convert the cellar?”

Peter Armistead has put together some options that landlords can consider to protect their profits:

Review your properties and see if you can get planning on an existing property to increase its value, by adding an extension, or converting the cellars?

If you have a one bedroomed property, can you make it into a small two bedroomed property?

If you lack building skills/knowledge, but have equity or cash may be partnering with someone more skilled in building/renovation work would be profitable.

Consider changing a house into an HMO and increase the rental income.

There is a real shortage of properties right now and prices are at a record high so consider selling some stock.

The tax changes don’t affect Limited Companies. Consider setting up a Limited Company and using this structure to hold your properties

Are you an active or passive investor? Passive investors will get hit hardest by the changes. May be active investors can find deals for other investors and create income streams there.

It will become far more important to buy property below market value. You can’t just buy £1 of property for a £1 anymore. Buying with a built-in discount will help ensure your investment is just that (i.e. an investment)

Consider other specialist areas of property investment which compliment traditional BTL. For example, can you manage properties for other landlords and charge a fee for that service? Can you sack your lettings agent and do the job yourself or use a cheaper online lettings agent?

Author Peter Armistead is a property investor in South Manchester. He has developed and sold over 400 properties and has a portfolio of over 100 properties in Manchester.

3 COMMENTS

Between 1980 and 1987, house prices went up by 400%. Landlords were not active. People did not Buy-to-let. Banks did not lend money to let out houses. It was a different time, we had regulated rents, secure tenancies, plenty of council housing, high interest rates, sensible bank lending. Yet house prices went up by 400%.

In this instance, Landlords are to blame, but not to extent claimed by the media. A 20 or 30 year today, as not idea of what happened in the 1980s.

When I tried to sell my rental property, young people were fussy, they only wanted the ‘perfect’ property. Even though, it was the cheapest in the area. Why not buy something which is not perfect and then climb the property ladder.

Take a look at the people shouting the loudest, they want to live in place like Brighton, but the same people will refuse to buy in Margate because it does not have hip and trendy people. If they build affordable housing in Brighton, the person who gets to keep it, rather then pass it on to the next person.

Places like Brighton have high prices, because they are fashionable places to live.

There are a lot of boring, unfashionable areas to live, but they don’t offer much in the way of lifestyle.

Instead of building homes, they should be improving areas, which already have affordable housing.

I think Mr Armistead is wrong when he states that the Government’s aim was ‘to reduce BTL profits and contract the market, in an effort to stabilise house prices and help first time buyers onto the property ladder’.

That’s what they SAID, because it made them look caring and sharing in the way that most politicians want to be seen. But I believe the real reason for their blatant attack on private landlords was because they want to hand over the buy-to-let sector to big corporate landlords, like insurance companies.